France’s Autoroutes Paris-Rhin-Rhône, or APRR, is a 2,318-kilometre network of toll roads in the east of the country that links the wealthiest regions of Paris and Lyon, offers a freight route to Germany, Switzerland and Italy and goes all the way to the French Alps ski region. A 25% stake in APRR is the main asset of ASX-listed Atlas Arteria, which was created in 2010 when Macquarie Infrastructure Group split the 11 toll roads it managed into two companies.
On top of APRR, Atlas Arteria has ownership in three other toll roads in Europe and the US. The company, which earned A$1.16 billion in revenue in 2018, has a 25% stake in French-based Adelac, the name of the company that owns the concession to a 20-kilometre stretch of road that connects the southeastern city of Annecy to Geneva in Switzerland. In the US, Atlas Arteria owns the Dulles Greenway, named after the US diplomat John Foster Dulles of the early Cold War era, which is a 22-kilometre toll road in Virginia that links the town of Leesburg to Washington D.C. The other asset is the 100%-owned Warnow Tunnel in the northeastern city of Rostock in Germany. The 2.1-kilometre toll road is so named because it includes an 800-metre stretch under the Warnow River that connects the residential and industrial parts of the Baltic port.
Such key road infrastructure means that Atlas Arteria offers investors a good vehicle through which they can invest in toll roads. Toll roads, as with other infrastructure and essential-services investments, offer investors stable, growing and inflation-protected cash flows. One of the key attributes that makes toll roads so attractive is that, in most instances, drivers save so much time people still use them if tolls rise. The other is that traffic expands over time as population levels and the economy expand.
Of the 10 or so global infrastructure stocks that are classified as toll roads, Atlas Arteria provides a compelling investment case. The company’s three inter-urban and one intra-urban toll roads are well used, as they are on popular routes that have little competition in terms of free and uncongested alternative routes. As well, Atlas Arteria holds long leases over its concessions that permit regular inflation-adjusted toll increases to protect real returns. The stock rose 27% over the 12 months to 31 March 2019.
That said, the intra-urban roads on which Atlas Arteria relies are more vulnerable to economic downturns than intercity ones because they tend to have higher proportions of commercial traffic and discretionary or leisure trips. Events can disrupt traffic too. The ‘yellow vest’ demonstration in France of recent months forced the temporary closure of some APRR motorways, which cost the company revenue. But while the car stays a central aspect of everyday life in France, the US and Germany, Atlas Arteria has the toll roads to provide its investors with growing, inflation-protected returns in coming years.
Atlas Arteria, which was known as Macquarie Atlas Roads until 2018, was spun out of the Macquarie Infrastructure Group in 2010 to hold APRR and a number of other toll roads, most of which were struggling financially. The task of management at the time was to narrow holdings down to worthwhile assets. It did this by selling the stakes in the Indiana Toll Road and Chicago Skyway and handing two other roads (the M6 toll road in the UK and the California State Route 125) to lenders.
Over the next years, management created the Atlas Arteria of today by buying an additional 4.7% stake in APRR and another 25% of Adelac, and by purchasing the 50% of the Dulles Greenway and 30% of the Warnow Tunnel that the company did not own.
The recent focus of management has been on a process known as ‘internalisation’; namely, removing Macquarie as the manager of the vehicle and installing management, structures and processes to fill the vacuum. The internalisation was completed on 1 April 2019, although Macquarie will provide certain transition services for another six months or so if needed.
An initial focus for the new management team, led by Graeme Bevans, will be to oversee the removal of Macquarie from the management structure of the APRR holding company – Macquarie funds own 16.28% of the holding company but have the right to manage the vehicle as the result of a structure put in place when the company was first privatised. Freed from Macquarie, Atlas Arteria management will be better able to exercise control of its assets.
Traffic has largely remained robust across Atlas Arteria’s holdings. Despite the yellow vest protests, APRR traffic rose 2.2% in 2018 to 24.3 billion kilometres travelled, to deliver a 4.7% boost to revenue to 2.54 billion euros (of which 25% heads to Atlas Arteria). Adelac traffic rose 1.2% to 29,713 average daily trips last year, while revenue rose 3.1% to 56 million euros (25% to Atlas Arteria). Warnow traffic jumped 10.5% to 12,948 average daily trips thanks to construction activity on competing routes, an increase that boosted revenue by 3.1% to 12.6 million euros. Dulles Greenway traffic, however, dropped 4.5% to 50,193 daily trips due to construction activity on the route, resulting in a 1.4% decrease in revenue to US$90.8 million.
Sources: Company filings and website and Bloomberg.
 To be specific, Atlas owns TRIP, which owns the concession for Dulles though 87% subordinated loans and 13% equity.